More reports on: Ports, Shipping

Sri Lanka to sell 70% stake in Hambantota Port to Chinese consortium

26 July 2017

Sri Lanka's cabinet on Tuesday approved a revised deal for the Chinese-built port in Hambantota, wherein it would sell 70 per cent stake in the southern port to the state-run China Merchants Port Holdings for $1.12 billion.

Reports said two separate companies would be formed to deal with administrative and commercial operations of the port. The Chinese will hold majority equity of the company to be formed for commercial operations while Sri Lank will hold majority in administrative operations.

The second firm, Hambantota International Port Group Services Co, with capital of $606 million, will be set up to oversee security operations, with the Sri Lankans holding a 50.7 per cent stake and the Chinese 49.3 per cent.

Speaking to reporters, ports minister Mahindra Samarasinghe said the modified agreement was more profitable to Sri Lanka and also addressed security concerns raised by other countries (meaning India) as Sri Lank will have majority in the company overseeing security of the port.

''Some missions (meaning India, Japan and the United States) here were worried that the port would be used as a military naval base. As per the revised agreement Sri Lanka will manage the port security,'' he said.

While the Chinese would manage port operations, ''no naval ship, including Chinese ones, can call at Hambantota without our permission,'' Samarasinghe added.

The Hambantota port is part of China's Belt and Road Initiative and India is concerned about the growing Chinese presence influence in the island.

Besides the port, Beijing plans to acquire 15,000 acres of adjoining land to help Colombo set up an industrial zone, raising Indian fears that the new Sri Lankan government is only an extension of the earlier Mahindra Rajapaksa government that had opened up the island to the Chinese.

''Our foreign policy today is reaching out to everyone and not giving special treatment to anyone,''  Samarasinghe said, responding to accusations that the current government is as close to Beijing as Mahinda Rajapaksa's administration was.

The Hambantota port was built with Chinese loans in 2010 during Rajapaksa's term. Unable to bear the cost the Maithripala Sirisena-Ranil Wickremesinghe government decided in late 2016 to sell 80 per cent stake in the port to the Chinese company in order to tackle the $8 billion debt Sri Lanka owes China.

Under the agreement, Colombo was to receive $1.12 billion for a 99-year lease.

The deal would be tabled in Parliament on Wednesday, and is likely to be signed on Saturday, the ports minister said.

The port, close to the world's busiest shipping lanes, has been mired in controversy ever since state-run CMHC, which built it for $1.5 billion, signed an agreement taking an 80 per cent stake.

In 2014, India was alarmed when a Chinese submarine docked in Colombo, where another Chinese firm is building a $1.4 billion port city on reclaimed land. India has long considered Sri Lanka, just off its southern coast, as within its sphere of influence and sought to push back against China's expanding maritime presence. In May, Sri Lanka turned down a Chinese request to dock a submarine.

Sri Lankans also demonstrated in the streets at the time against plans to lease extra land near the port, fearing loss of their land, while politicians said such large scale transfer of land to the Chinese impinged on the country's sovereignty.

China has been building ports in Pakistan, Sri Lanka and Bangladesh and smaller island nations in what military officials call a "String of Pearls" in the Indian Ocean, or a network of friendly ports where its warships can refuel.

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